Paramount Skydance Corp. is expected today to levy what may be its Hail Mary to swipe Warner Bros. Discovery Inc. from the hands of Netflix Inc.
Netflix last week granted a limited, seven-day waiver to Warner Bros. Discovery to open talks with Paramount. That allows Warner Bros. Discovery to gain more clarity for shareholders and give Paramount a chance to make “its best and final offer.”
Warner Bros. Discovery and Paramount would use the allotted timeframe to discuss “deficiencies that remain unresolved and clarify certain terms of (Paramount Skydance’s)” proposed agreement, Warner Bros. Discovery said in a statement.
Netflix retains the matching rights under the definitive agreement it signed with Warner Bros. Discovery in December. The latter also has a special meeting slated March 20 for shareholders to vote on the Netflix merger, and the board insists in its recommendation to greenlight the deal.
“Paramount had been making a ton of noise, flooding the zone with confusion for shareholders … including floating all these hypothetical offers and talking directly to the shareholders and bypassing the Warner Bros. Discovery board,” Netflix Co-Chief Executive Ted Sarandos told CNBC last Tuesday. “So, we’ve given the opportunity to get those shareholders exactly what they deserve, which is complete clarity and certainty.”
Paramount also said it would raise its offer to $31 a share if the HBO owner ever opens negotiations, according to a Warner Bros. statement. It is also not its “best and final offer” yet, Paramount indicated, adding that the company is ready to “engage in good faith and constructive discussions” while continuing its plan for a boardroom proxy war.
Crashing the party
Paramount first approached Warner Bros. Discovery in September with an offer of $19 a share to acquire its entire business. That deal – including Warner Bros. Discovery’s massive intellectual property library, cable networks and streaming platforms – sparked a fervent bidding war with Netflix that’s lasted for months.
In its latest offer in mid-January, Netflix switched to an all-cash bid – maintaining its initial $82.7 billion price, at $27.75 a share – for Warner’s studios and streaming division, plus any retained equity in Discovery Global, Warner’s global networks spinoff. The CNN-inclusive spinoff will likely happen in the third quarter this year; and while Netflix promised Warner shareholders a price pending Discovery Global’s market performance, Netflix wouldn’t have direct control of the independent company.
Paramount has countered the Netflix agreement with a $30 per share all-cash tender offer, taking repeated gestures to steal the deal. That includes taking the matter directly to shareholders, promising personal guarantees, threatening a boardroom proxy war, suing Warner Bros. Discovery for failure to disclose key financial details and adding a $650 million “ticking fee” to sweeten the deal for every quarter the tab stays open past this year.
The latest development showed that while Netflix still has the wheel, it is not entirely unrattled by Paramount’s persistent attempts – it now needs to make its case, wrote Ric Prentiss, head of telecommunication services and media equity research at Raymond James Financial Inc.
“We believe (Netflix) would match a proposed (Paramount Skydance) bid raise but will not chase (Warner Bros. Discovery) to the ends of the earth. If (Paramount Skydance) does raise its bid during this seven-day period, we think that Netflix would be willing to raise its bid in a commensurate fashion,” Prentiss wrote.
Regulations and red tapes
Beyond monetary matters, Netflix and Paramount also wrestle on which offer presents relative ease to sail through regulatory barriers. Netflix’s vertical integration model has drawn antitrust violation suspicion from analysts, investors and regulators, while Paramount, being a much smaller company than Netflix by market cap, is viewed to have a smoother outlook.
“The antitrust implications of this deal look severe. Last week, the company had a really bad week in Washington, D.C., with policymakers and other antitrust officials making their pathway to approval dubious at best,” Jim Chadwick, president of Ancora Alternatives, told CNBC on Feb. 11. “The regulatory side – Paramount has a much easier pathway to approval and obviously a much better relationship with the current administration.”
